E-commerce businesses expected to ask for extension of FDI deadline

India’s large e-commerce businesses are expected to ask to be given more time before the new foreign direct investment (FDI) policy kicks in on February 2.

Amazon India and Flipkart are expected to ask for extensions to the FDI policy implementation deadline At present, companies have until February 1 to comply with the new FDI policy rules but, given the sweeping changes some e-commerce firms may have to make to comply, this may not be enough time. Both Amazon India and Walmart-owned Flipkart are US-owned and sources expect the businesses to ask for an extension to the deadline as reported by ET Bureau.

“Companies will need to study the latest provisions in detail and may need to bring about huge operational changes,” a source told ET Bureau, adding that a month is not ample time to achieve this. The Policy Note 3, disseminated by the Department for Industrial Policy and Promotion (DIPP) on December 26, forbids e-commerce platforms from selling brands in which they have a stake. Although the government has said that this does not mean an end to private labels, an especially large part of the online fashion business, many e-commerce firms are uncertain.

Both Amazon India and Flipkart control their inventory and this is forbidden under the new policy. Both businesses purchase goods from their own wholesale divisions and then sell the products on their respective marketplace through certain sellers. As the businesses may have an equity stake in the sellers, the new policy would not allow this.

“We continue to be committed to the Indian market,” said Flipkart in a statement as reported by ET Bureau. “It is important that a broad market-driven framework be developed through a consultative process. We hope to be able to work with the government to promote fair, pro-growth policies that will continue to develop this nascent sector, making India a competitive economy and driving benefits to consumers, small suppliers, infrastructure development, and innovation. We will work with regulators to ensure our compliance with all Indian laws.”

Amazon India has also previously stated that it will adhere to Indian regulations. Both Amazon and Walmart have invested millions of dollars in the Indian market but have been met with animosity by many smaller domestic businesses. The government may now have to choose between supporting grass roots Indian businesses and large multi-nationals.

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Flipkart has restructured its operational model and added around six intermediary companies to act as a go-between from its wholesale business to its preferred sellers in order to comply with the new FDI norms.